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Authorised push payment (APP) fraud rules should be delayed by a year, the UK payments lobby has said, after the head of the Payment Systems Regulator (PSR) abruptly left his post.
The Payments Association, whose members include Visa, Mastercard, major UK banks and fintechs such as Modulr and Thredd, said in a press statement on Monday (June 10) that the rules would create a significant increase in prudential risk and market participation requirements.
The new rules require payments providers to reimburse defrauded customers within five working days, and are due to come into force on October 7, 2024. Costs will be split 50/50 between sending and receiving payment service providers, with a maximum reimbursement of £415,000 and an optional £100 excess.
Both faster payments and retail CHAPS payments are included in the regulatory scope, with special provisions for vulnerable consumers.
“If the current changes are implemented, we believe the prudential risk and requirements to participate in the UK payments market will increase significantly, resulting in reduced competition and an increase in the unbanked population,” said Riccardo Tordera-Ricchi, head of policy and government relations for the Payments Association.
Tordera-Ricchi warned that the current trajectory could also result in an increase in cost and friction of real-time payments and a decrease in investment into the UK fintech market due to higher risks of failure and lower profitability. The Payments Association suggests the PSR postpone implementing FPS rules by 12 months.
The rules have generated controversy across the payments ecosystem, marking the first time that the PSR has faced intense backlash from industry. One payments advisor told Vixio the rules were “just so crude” and said “it's no wonder the banks are going berserk”.
Some payments industry insiders have suggested that Chris Hemsley, who left his job at the top of the watchdog on May 31, had been the face of the rules and subsequently the fall guy, with one branding the compliance requirements “naive and misconceived”. The PSR has denied that this is the case.
According to the Payments Association, a delay would allow for the full operationalisation of the Pay.UK case management system, activation of dispute resolution mechanisms and completion of the Confirmation of Payee rollout.
The association states that Pay.UK currently lacks crucial functionalities such as exceptions handling, remediation and dispute resolution mechanisms found in other global schemes, questioning the feasibility of implementing the APP fraud reimbursement scheme through Pay.UK's framework by October 7.
The association also supports a "one-ecosystem approach", echoing the Home Affairs Committee's call for a fraud levy on social media companies to fund victim compensation.
While endorsing reimbursement, the Payments Association has sought regulatory changes by proposing to reduce the threshold from £415,000 to £30,000.
This aligns with average scam costs of £11,000 for businesses and £1,500 for consumers, keeping the threshold significantly higher than typical losses.
The £415,000 threshold has often been a sticking point for payments insiders, with one source sympathetic to the PSR’s proposals recently telling Vixio that they “haven’t a clue” how that number was determined.
In response to a request for comment from Vixio, the PSR’s interim director, David Geale, pointed out that APP fraud continues to be a problem and that last year victims lost around £450m. “We therefore need to act quickly,” he said. “After more than two years of extensive consultation and industry engagement, our requirements will come into effect on 7 October.”
Geale said that the regulator will continue to engage with and support industry, taking into account all feedback “as we move forward and as industry works hard to implement the systems and processes needed for the new reimbursement requirements”.
